Maryland’s budget shortfall: Don’t leave tax reform off table
The latest bad-but-better-than-expected tax revenue estimates for the state of Maryland have been pulling double-duty as a political Rorschach test. Comptroller Peter Franchot looks at a shortfall in the hundreds of millions of dollars released Friday and sees an opportunity for a statelevel stimulus plan. Nancy Kopp, the state’s treasurer, sees that, too. Yet the Hogan administration does not, with David Brinkley, Gov. Larry Hogan’s budget secretary, cautioning fellow members of the Board of Revenue Estimates that “unfortunate surprises” may yet be around the corner.
Seemingly lost in all this inkblot psychology is a more fundamental question: How is Maryland going to cover a shortfall of nearly $1 billion, including $609 million in the current fiscal year that ends next June and $312 million in Fiscal 2022? The course of least political resistance is to cut spending, but that seems particularly ill-advised during a recession that has clearly hit low-income families much harder than big corporations and upper-income households. As the board was advised last week, a disproportionate number of Marylanders who lost their jobs or suffered dramatic drops in income work in the food services, arts and entertainment, and recreation sectors. These are not high-paying work-at-home desk jobs. They are individuals who are likely to need help from safety-net programs, some of which may see reduced state and federal funding.
Meanwhile what those families do need is hope in the future. And high on the agenda in that regard is for lawmakers to override Governor Hogan’s veto of the Blueprint for Maryland’s Future, the Kirwan Commission plan to bring greater equity to school funding and raise K-12 performance statewide. That comes with a hefty multibillion-dollar price tag — not immediately but in the years ahead. If anything, the pandemic has laid bare the equity issue. Higher-income families are navigating through online education far better than those who lack internet service or technical expertise or even computers at home. Even post-pandemic, schools may not be able to raise student performance to cover this IT deficit.
That’s why we would expect state legislators to be exploring not just ways to reduce spending but to augment tax revenues in the long-term in a way that won’t dampen Maryland’s economic recovery. There are quite a few choices in this regard and they are known to most in Annapolis. An advocacy group, the Maryland Fair Funding Coalition composed primarily of unions, non-profits and education advocates, has done an admirable job of spelling them out. The plan’s centerpiece proposal is to alter the state’s income tax rates to collect more from high-earners and less from those in the lower brackets. Much of the other reforms feature closing corporate tax loopholes including, most egregiously, the so-called “combined reporting” rule that would end the practice of out-ofstate corporations shielding subsidiary profits from state corporate taxes. No fewer than 28 states and the District of Columbia have instituted it but Maryland is not one of them.
To put it simply, the average Maryland resident would feel little ill effect from the coalition’s tax reform proposals and quite a few might actually see their state tax bill decline. Most importantly, if approved, the measures would ensure that Kirwan school upgrades would move forward past Fiscal 2027 when their cost might otherwise prove prohibitive. Not to mention it might put the state in a better position to address some immediate needs like helping jurisdictions with a high number of low-income households overcome the pandemic learning gap. And it would help finance a proposed 10-year $580 million settlement toward the state’s historically Black colleges and universities that have sued Maryland for unequal treatment.
Will lawmakers override Governor Hogan’s veto of the blueprint plan in the upcoming legislative session without a long-term strategy in place to meet its cost? We’re betting that’s the plan, and we don’t need any inkblot test to determine their feelings on the matter. State legislators are loathe to raise taxes in the second half of their four-year terms. Whomever the Republicans nominate to succeed the term-limited Mr. Hogan in 2022 would no doubt relish the opportunity to criticize anything that might be construed as a tax increase. Yet progressive Democrats may well remember that lost opportunity as budget cuts are made, state programs and public employees are hit and vital Kirwan reforms at put at risk in the months ahead when it’s time to choose their own gubernatorial nominee and representation in the General Assembly.